Stronger Yields Drive the Euro Higher |
Today the markets de-correlated slightly where riskier assets such as equity markets and currencies, bucked the trend despite the political unrest that is evident in Egypt. The US equity markets and the Euro, moved higher as fundamentals continued to drive these markets higher.
German interest rates have move higher relative to US interest rates, making it more attractive to hold the EUR/USD relative to the US dollar. The euro has gained buying interest as the widening of interest rates between US and German have trumped the flight to safety trade for the dollar. Euro zone inflation increased to 2.4% on a year over year basis in January from 2.2% year over year in December. The increase has increased short term German interest rates and has led the 2-year US-German differential higher to 85 basis points which is the widest since March of 2009. Inflation levels over 2%, will likely attract hawkish comments from the ECB.
The Euro tested lower levels early in Asian trading before snapping back toward the 1.37 level. The next resistance level is close to 1.38. Last week, the 20-day moving average crossed above the 50-day moving average generating upside technical momentum for the Euro. Support for the currency pair is seem below at 1.34, which coincides with the 20-day moving average.
In the US, better than expected manufacturing data and solid consumer spending data, helped with the US equity markets. Better than expected earnings from Exxon, before the bell also lifted investor spirit. Exxon Mobil posted quarterly earnings early on Monday morning that topped analysts' expectations, thanks to rising oil prices. Exxon reported earnings of $9.25 billion, or $1.85 a share in the fourth quarter. That was up 53% from $6.05 billion, or $1.27, a year earlier. Analysts had expected earnings per share of $1.63. Revenue 17% to $105.2 billion in the quarter, beating expectations of $99.1 billion in revenue.
Consumer Spending grew at an annualized pace of 4.4 percent for during the last quarter of year, the best showing since the first quarter of 2006, according to the Commerce Department. The gains reflected yearend holiday shopping. Consumer spending rose in December by 0.7 percent from the prior month, which outpaced a 0.4 percent gain in personal income for the month.
Additionally, the Chicago Purchasing Managers Index rose to a 20 year high at 68.8, from a 66.6 level in the prior month. Market participants were expected a level of 65.
Originally posted here.
